Suppliers: Bring Your Checkbook

Over the years, there's been many an effort to make suppliers pay for access to buyers. But historically, many of these "supplier pays" models have been by intermediaries, such as FreeMarkets (in its early days) and other online channels for suppliers, such as marketplaces and indirect procurement portals. Even Ariba recently announced that it would be adding fees to suppliers that make frequent use of the Ariba Supplier Network (ASN).

But recently, I've spoken with a number of large buying organizations who are beginning to make suppliers bring their checkbooks to meetings (well, almost). In virtually all cases, there's a twist that goes along with these new supplier fees. For example, take the case of a large global technology-related company (I've blinded the exact industry to protect my source) that charges winning suppliers in reverse auctions to pay a fee to get the business. Obviously, this is fancy budgeting to get suppliers to offset the sourcing software and other costs associated with negotiations, but suppliers do indeed cut cut checks to the buying organization when they receive business.

Other companies charge suppliers when they register and maintain information on a supplier portal. One large global diversified conglomerate charges over $3000 a year to its suppliers to gain access to their supply portal to list their goods and services in their online catalog system. By my calculations, knowing the number of suppliers in question, this more than covers the cost of software, staffing, and other expenses associated with maintaining an online eProcurement and catalog requisitioning system. This gives "profit from procurement" an entirely new meaning!

I know of other large buying organizations considering a similar move as well. Many reason that suppliers happily spend thousands of dollars flying to sales meetings, and some of that cost could be re-allocated to off-set the technology investments that the buying organization makes to make it easier for suppliers to transact with them.

But charging suppliers is not just limited to offsetting software (and associated) costs. In the travel and hospitality industry, I've heard of one company that lets suppliers sponsor their bi-annual supplier conference. While the buyer bills this as "advertising" for attending suppliers, it certainly raises an ethical eyebrow about whether "sponsors" would be favored over non-sponsors in the sourcing process when it comes to new contracts. In this case, the buying organization has put a stake in the ground and has said that sponsorship will have no impact on contract award decisions, but regardless, visibility at events like this can help reinforce brand and other subjective criteria that buyers -- who are in attendance -- rely on during award decisions. Talk about a captive audience!

Is there a slippery slope by making suppliers pay -- either at the point of sale, for access, or from an advertising perspective? At this point, I'm not sure. But to be careful, buying organizations should ground supplier-pays business models in tight, well-thought out businesses cases, lest they start down a path from which they can’t return.

What do you think? What is your experience? Are you considering such a model yourself? Post a comment or drop me a line: jbusch@spendmatters.com.